The Government is seeking to rebalance Britain's trading relations away from slow-growing Europe to the emerging economies, of which Brazil, Russia, India and China are the largest, and that makes obvious sense.
But the other big emerging economies matter too. So it is especially welcome that the Prime Minister should stop off on his great team visit to India (Vince Cable and David Willetts arrived in Bangalore yesterday) and spend time in Turkey.
We tend to think of Turkey so much in political terms – its role in NATO, its potential membership of the European Union, its stance on Gaza and so on – that we tend to forget that it has become something of an economic powerhouse. At the moment it ranks around number 16 in the world economy but it is climbing steadily and calculations by Goldman Sachs suggest it could be approaching the top 10 within a couple of decades. This year it is expected to grow at well over 6 per cent, more than regaining all the ground lost in the recession, and faster than any EU member. It does have a serious inflation problem, with consumer prices expected to rise in 7.5 per cent this year, but the inflation outlook is improving in the future.
Given this relative success, while David Cameron may feel angry at the lack of progress in the country's negotiations to join the EU, looking at this performance Turkey might be well advised to stay out. If it can get all the benefits of a trading relationship with the EU without any of the political palaver it might consider that this club is worthy of the Groucho Marx retort.
But – and this is the bigger point – rebalancing out trade relationships is not just about trying to sell more to the BRICs, or the "Next 11", Goldman's term for the next 11 emerging economies in terms of population, or even the CIVETS. That, in case you did not know, is the acronym coined by Michael Geoghegan, chief executive of HSBC, to clump together another group of middle-income emerging economies: Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa.
You don't increase trade by some top-down political initiative, though as I say this exercise by the new Government is most welcome in that it may reboot the whole relationship between the UK and India. What governments can do is to try to remove bureaucratic roadblocks that impede trade, be they visa restrictions, export licences, whatever. And they can deploy the diplomatic service to smooth relationships that otherwise might have become frayed: there is a huge task ahead in the US, post the BP catastrophe.
There is something else. On the face of it, one of the disturbing features of UK trade over the past three or four years is that we have not been growing market share in the emerging world and in many markets have been losing share. That is partly because a lot of the things that these countries are importing are either raw materials or plant and machinery, areas of the market where the UK is not so strong. Where we are strong is in service exports, where we are second only to the US. As countries become richer, so the balance of trade is likely to move away from physical items and towards service ones. So in the medium-term this is encouraging. However, trade in services is more complex than trading in goods, for goods are the same the world over – a BMW is a BMW everywhere – whereas services have to be crafted to individual preferences and tastes.
So we have to recognise both that it is not just the BRICs that matter and that selling services to a host of different countries is going to be a tricky, subtle task. But that is what makes life interesting for the UK. We have a really interesting hand of cards to play and it is good to see that our new government is trying to play it with sensitivity. See David Cameron's comments in Turkey in that light.
At last it's payback time for taxpayers
British bank shares have been doing well recently. This is thanks, it seems, partly to a general perception that the industry is recovering – there were good profits from two big Continental banks, Deutsche Bank and UBS – and to reports that the Basel Committee, which oversees capital needs for banking, would ease some requirements. The net effect s that the UK Government, ie we UK taxpayers, are just about square on our investment in Lloyds Bank and Royal Bank of Scotland. Our paper's expert calculates that, last night, we showed a tiny loss on Lloyds and a tiny profit on RBS. It is now perfectly plausible, given reasonably fair winds in the next couple of years, that we will end up making a substantial profit on our enforced investment.
That will change the politics of banking. Yes, they will continue to some extent to be whipping boys for not lending enough to British companies, though that charge is somewhat unfair for two reasons. One is that the foreign banks have largely pulled out of the UK market, whereas two years ago half the new syndicated loans came from them. The other is a lot of companies are choosing to repay loans and understandably so when deposit rates are so low. Why borrow at, say, 7 per cent, when you can only get 1 per cent on your spare cash? Far better to do what households are also doing, which is to pay down the loan as fast as possible.
So bankers should not expect to be loved. But if we taxpayers make a few billions profit out of the investment in the nationalised banks, then it will be hard to blame the financial sector for the Government's fiscal deficit, as the last government tried quite successfully to do. In the looming austerity of the next couple of years, HMG's profit on bank share sales will be a rare shaft of light. We will need it.
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